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Morning Take-Out

By William Alden August 3, 2012 8:05 amAugust 3, 2012 8:05 am

Errant Stock Trades Reveal a Risk That Few Anticipated | The trading firm Knight Capital recently rushed to develop a computer program so it could take advantage of a new Wall Street venue for trading stocks. But the firm ran up against its deadline and failed to fully work out the kinks in its system, according to people briefed on the matter. In its debut Wednesday, the software went awry, swamping the stock market with errant trades and putting Knight’s future in jeopardy.

The fiasco, the third stock trading debacle in the last five months, revived calls for bolder changes to a computer-driven market that has been hobbled by its own complexity and speed. Among the proposals that gained momentum were stringent testing of computer trading programs and a transaction tax that could reduce trading.

In the industry, there was a widespread recognition that the markets had become more dangerous than even specialists realized.“What is starting to become clear is that the costs in terms of these random shocks to the system are occurring in ways that people never anticipated,” said Henry Hu, a former official at the Securities and Exchange Commission and a professor at the University of Texas in Austin.

Knight, founded in 1995, is a leading matchmaker for buyers and sellers of stocks, handling 11 percent of all trading in the first half of this year, according to the data firm Tabb Group. Knight lost three-quarters of its market value in the last two days, in addition to losing $440 million from the errant trades, and was scrambling to find financing or a new owner.DealBook »

Trying to Be Nimble, Knight Capital Stumbles | Thomas M. Joyce, chief executive of the Knight Capital Group, has been an unapologetic advocate of electronic trading. After Wednesday’s trading debacle at Knight, he is fighting for the firm’s survival.DealBook »

News Analysis: An Automated Jolt for the Markets | Market makers who once might have stepped in during trading mishaps have largely been replaced by computers programmed to make lucrative high-frequency trades, Floyd Norris reported for The New York Times.DealBook »

DEAL NOTES

Heiress’s Apartment in Contract to Private Equity Chief | Frederick Iseman, chief executive of private equity firm CI Capital Partners, has agreed to buy an apartment owned by the heiress Huguette Clark, who died last year, for $22.5 million, but the deal is subject to approval by the building’s board, The Wall Street Journal reports, citing unidentified people familiar with the transaction. Another apartment of Ms. Clark’s in the same building was recently purchased by the hedge fund manager Boaz Weinstein. WALL STREET JOURNAL

London’s Financiers Lay Low at the Olympics | When Carsten Kengeter, co-head of UBS’s investment bank, took a client to the Olympics, the pair joined commuters on public transportation, The Wall Street Journal reports. WALL STREET JOURNAL

Disappointment After a European Policy Meeting | A week after the president of the European Central Bank, Mario Draghi, said he would “do whatever it takes to preserve the euro zone,” he acknowledged on Thursday that whatever it takes could take weeks or months, The New York Times reports. NEW YORK TIMES

Heineken Said to Reach Deal for Singapore Brewery | Heineken agreed to buy a controlling stake in Asia Pacific Breweries from Fraser and Neave, in a deal worth at least $4 billion, Reuters reports, citing unidentified people with knowledge of the situation. REUTERS

McGraw-Hill Said to Receive Bids for Education Unit | Buyout firms including Bain Capital and Thomas H. Lee Partners submitted bids for McGraw-Hill’s education business, which could be valued at roughly $3 billion, unidentified people familiar with the matter told Reuters. REUTERS

Companies Borrow More to Finance Deals | Bloomberg News reports: “Companies are borrowing the most in the loan market since 2008 to finance acquisitions worldwide, betting that they can quickly replace the debt with permanent financing as yields on corporate bonds fall to records.” BLOOMBERG NEWS

China Telecom Said to Plan $19 Billion Asset Purchase | China Telecom is said to be planning to pay more than $19 billion for 3G wireless assets owned by its parent company, according to Reuters, which cites two unidentified people. REUTERS

Sun Pharmaceuticals of India Said to Eye German Drug Maker | Sun Pharmaceuticals has sought to raise $1 billion for a deal in Europe and has its eye on the German generic drug maker Stada Arzneimittel, Bloomberg News reports, citing unidentified people familiar with the matter. BLOOMBERG NEWS

Royal Bank of Scotland Records $3 Billion Loss in First Half | The British bank reported a net loss of $3.09 billion in the first half of the year after it took an accounting charge on its debt and other one-off charges.DealBook »

For Wall Street, Real Pain When the Fed Fails to Act | A lack of new stimulus moves by the Federal Reserve and the European Central Bank this week may have a direct and painful impact on the chief source of revenue at investment banks on both sides of the Atlantic.DealBook »

A Warning to Investors Is Buried in Details | Floyd Norris writes in his column in The New York Times that a particular investment sold by Wells Fargo “is illustrative of what can happen when a security is packaged by a firm that intends to have a contrary interest from its customers for the life of the security, and that does not clearly explain what could go wrong.” NEW YORK TIMES

Citigroup’s C.E.O. Ponders Succession Plans | The Wall Street Journal reports: “A lead contender is Mike Corbat, the head of Citigroup’s operations in Europe, the Middle East and Africa, according to people close to the company. These people said that other executives who have won high marks from the board include Jamie Forese, the chief executive of securities and banking; and Jane Fraser, who runs Citigroup’s private bank.” WALL STREET JOURNAL

Citigroup Hires a Credit Trader From Morgan Stanley | Nick Gray is joining Citigroup as a senior credit trader in London, as the bank expands its credit trading business in Europe, Bloomberg News reports. BLOOMBERG NEWS

Pimco Fund Attracts $2.1 Billion of Deposits in July | The Pimco Total Return Fund, which is managed by Bill Gross, had its seventh straight month of net deposits, Bloomberg News reports. BLOOMBERG NEWS

A Word of Caution on Private Equity | The Economist writes: “The largest leveraged buy-outs fared better than the doomsayers predicted. But private-equity firms have no right to boast.” ECONOMIST

Apollo’s 2nd-Quarter Profit Falls 84% | Apollo Global Management said on Thursday that profit tumbled by 84 percent in the second quarter, as its core private equity business grappled with difficult markets.DealBook »

Fortress Results Show Strength in Private Equity | The Fortress Investment Group reported a second-quarter profit that was helped by growth in its private equity holdings, Bloomberg News reports. BLOOMBERG NEWS

In China, Private Equity Moves Away From I.P.O.’s | Reuters writes that a recent deal by the Carlyle Group “underscored how funds are increasingly moving away from their traditional exit route of listing mainland assets in stock markets. Historically, I.P.O.’s had been the dominant exit strategy for buyout funds investing in China.” REUTERS

Third Point Puts a Focus on Kraft | A position in Kraft Foods was one of the biggest holdings of the hedge fund Third Point in July, according to a monthly investor report, Reuters reports, but the note does not say whether the position was long or short. REUTERS

Will Others Follow Moore Capital’s Lead? | Moore Capital Management made a surprise decision to return about 25 percent of its main fund to investors, but Reuters writes that the move may “be an isolated decision made by a billionaire who has delivered double-digit returns over two decades.” REUTERS

An Oil-Focused Fund Logs a Gain | Astenbeck, a commodities hedge fund that has been stubbornly bullish on oil, had its first gain since February, rising 4 percent in July, Reuters reports. REUTERS

British Hedge Fund Applauds European Plan | Stephen Jen, who runs the London-based firm SLJ Macro Partners, has been bearish on the euro, but he expressed approval of a new plan by the European Central Bank, The Wall Street Journal reports. WALL STREET JOURNAL

JAL Plans an I.P.O. to Raise $8.5 Billion | On paper, Japan Airlines is on track for a strong recovery after it eliminated one-third of its work force, or about 16,000 jobs, dropped unprofitable routes and slashed pensions.DealBook »

2 Executives to Leave Facebook | Facebook’s stock dropped on Thursday to a record low after two senior executives said they would leave the company. BLOOMBERG NEWS

California Lowers Expectations for Facebook-Related Taxes | As a result of the slide in Facebook’s stock price, state taxes related to the company’s I.P.O. could be “hundreds of millions of dollars” less than the $1.5 billion initially expected, California said, according to The Financial Times. FINANCIAL TIMES

Yahoo Chief Invests in a Car-Sharing Service | Marissa Mayer, the new chief executive of Yahoo, was among the investors in a $13.9 million financing round for Getaround, VentureBeat reports. VENTUREBEAT

Russian Mogul Backs a Music-Streaming Start-Up | Len Blavatnik, owner of the Warner Music Group, has purchased a small stake in Deezer, a European rival to Spotify, The New York Post reports, citing unidentified people. NEW YORK POST

Mobile Payments Service Attracts $21 Million | LevelUp, a payments service that is part of the start-up SCVNGR, raised $9 million from the venture capital arm of Deutsche Telekom, to complete a two-part, $21 million round of financing, VentureBeat reports. VENTUREBEAT

Japan Widens Inquiry Into Insider Trading | A Japanese investigation into insider trading has extended onto the trading floors of some of Wall Street’s largest companies, including Goldman Sachs.DealBook »

Bristol-Myers Executive Is Accused of Insider Trading | Robert Ramnarine is accused of buying call options in ZymoGenetics, Pharmasset and Amylin Pharmaceuticals before they were acquired by Bristol-Myers Squibb.DealBook »

Former Diamondback Manager Is Spared Prison | A judge sentenced Anthony Scolaro, a former portfolio manager at Diamondback Capital Management, to three years of probation, after he pleaded guilty to insider trading, Reuters reports. REUTERS

A.I.G. Profit Buoyed by Tax Benefits | A.I.G. said its profit in the second quarter rose to $2.33 billion from $1.84 billion a year earlier, helped by tax benefits, Reuters reports. The insurer said it had $11 billion in liquidity at the parent company level that it could use to buy back shares from the government. REUTERS

Proposal to Split Banks Gains Traction in Iceland | After suffering a dramatic financial collapse, Iceland is now on track to become “the first western nation since the global financial crisis hit five years ago to force banking conglomerates to split their business,” Bloomberg News reports. BLOOMBERG NEWS

S.E.C. Official Who Oversaw Hedge Funds to Retire | Robert Plaze, a deputy director of the Investment Management division of the Securities and Exchange Commission, is retiring at the end of August after nearly 30 years at the agency, Reuters reports. REUTERS